May 31 2005
Around 306 B.B., give or take a decade or so, a
fellow named Pyrrhus ascended to the throne of Epirus in Northern
Greece. Pyrrhus was recognized as a great warrior and clever
strategist, but as he moved from battle to battle, and casualties
mounted on both sides, he quickly gained a reputation for not knowing
when to stop. In 281 BC he soundly defeated the Roman forces at
Heraclea and Asculum, but suffered heavy losses in the process. Even
Pyrrhus recognized the pitfalls of this strategy. The devastation led
to his famous statement: "One more such victory and I am lost."
Since the time of Pyrrhus, the term "Pyrrhic victory" has come to mean any victory that is offset or overshadowed by ruinous losses. The once mighty accounting firm of Arthur Andersen may not fit the warrior mold, but there is little doubt that it has joined the ranks of Pyhrric victors. On May 31, 2005, the United States Supreme Court unanimously overturned the conviction of Arthur Andersen for its role in the Enron scandal. That conviction had helped doom Arthur Andersen, once one of the nation's leading auditors.
The justices concluded that the jury had been poorly instructed. Indeed, in the words of Chief Justice William Rehnquist, "it is striking how little culpability the instructions required." The Justice Department, which has not decided whether to retry the case, expressed disappointment at the Supreme Court decision.
Arthur Andersen, Enron's accountant, emerged as the first target for regulators seeking to sort through the Enron mess after the energy giant filed for bankruptcy in December 2001. In June 2002, Arthur Andersen was convicted by a federal jury on charges that it had obstructed justice by destroying thousands of Enron documents. By that time, the accounting firm already was reeling from the scandal, and rapidly dissolving. The conviction was merely one more nail in its coffin.
The Supreme Court focused on the wording of jury instructions, which Andersen's attorneys said were improperly vague. At issue was the meaning of the term "corruptly persuading" in federal criminal statutes and the legal standards for "criminal intent." Chief Justice Rehnquist chided prosecutors for their lack of care, noting:
Such restraint is particularly appropriate here, where the act underlying the conviction -- 'persuasion' -- is by itself innocuous. Indeed, 'persuading' a person 'to withhold' testimony from a government proceeding, or government official is not inherently malign…Consider, for instance, a mother who suggests to her son that he invoke his right against self-incrimination ... or a wife who persuades her husband not to disclose marital confidences.
Enron, once a mighty energy company, collapsed in the wake of extensive accounting scandals in 2001. Enron has claimed more than its share of victims. Thousands of Enron employees lost their jobs and savings, and saw their retirement accounts – filled with Enron shares –disappear. Thousands of Enron shareholders, who had relied upon the Company's false public disclosures and phony financial statements, lost their investments.
And Arthur Andersen, the once might accounting firm that boasted around 28,000 employees, is barely breathing. A handful of employees attend to the accounting firm's remaining legal matters. Perhaps they will pause in their labors today to celebrate their victory before the U.S. Supreme Court, Pyhrric though it may be.
IF YOU HAVE QUESTIONS OR COMMENTS FOR STOCKPATROL.COM, CONTACT US AT editor@stockpatrol.com
Hartley Bernstein and StockPatrol.com have been featured in The New York Times, The Wall Street Journal, Forbes, Barrons, Crain’s New York Business, Details Magazine, Chief Security Officer Magazine, and Investment Dealers Digest.
Since the time of Pyrrhus, the term "Pyrrhic victory" has come to mean any victory that is offset or overshadowed by ruinous losses. The once mighty accounting firm of Arthur Andersen may not fit the warrior mold, but there is little doubt that it has joined the ranks of Pyhrric victors. On May 31, 2005, the United States Supreme Court unanimously overturned the conviction of Arthur Andersen for its role in the Enron scandal. That conviction had helped doom Arthur Andersen, once one of the nation's leading auditors.
The justices concluded that the jury had been poorly instructed. Indeed, in the words of Chief Justice William Rehnquist, "it is striking how little culpability the instructions required." The Justice Department, which has not decided whether to retry the case, expressed disappointment at the Supreme Court decision.
Arthur Andersen, Enron's accountant, emerged as the first target for regulators seeking to sort through the Enron mess after the energy giant filed for bankruptcy in December 2001. In June 2002, Arthur Andersen was convicted by a federal jury on charges that it had obstructed justice by destroying thousands of Enron documents. By that time, the accounting firm already was reeling from the scandal, and rapidly dissolving. The conviction was merely one more nail in its coffin.
The Supreme Court focused on the wording of jury instructions, which Andersen's attorneys said were improperly vague. At issue was the meaning of the term "corruptly persuading" in federal criminal statutes and the legal standards for "criminal intent." Chief Justice Rehnquist chided prosecutors for their lack of care, noting:
Such restraint is particularly appropriate here, where the act underlying the conviction -- 'persuasion' -- is by itself innocuous. Indeed, 'persuading' a person 'to withhold' testimony from a government proceeding, or government official is not inherently malign…Consider, for instance, a mother who suggests to her son that he invoke his right against self-incrimination ... or a wife who persuades her husband not to disclose marital confidences.
Enron, once a mighty energy company, collapsed in the wake of extensive accounting scandals in 2001. Enron has claimed more than its share of victims. Thousands of Enron employees lost their jobs and savings, and saw their retirement accounts – filled with Enron shares –disappear. Thousands of Enron shareholders, who had relied upon the Company's false public disclosures and phony financial statements, lost their investments.
And Arthur Andersen, the once might accounting firm that boasted around 28,000 employees, is barely breathing. A handful of employees attend to the accounting firm's remaining legal matters. Perhaps they will pause in their labors today to celebrate their victory before the U.S. Supreme Court, Pyhrric though it may be.
IF YOU HAVE QUESTIONS OR COMMENTS FOR STOCKPATROL.COM, CONTACT US AT editor@stockpatrol.com
Hartley Bernstein and StockPatrol.com have been featured in The New York Times, The Wall Street Journal, Forbes, Barrons, Crain’s New York Business, Details Magazine, Chief Security Officer Magazine, and Investment Dealers Digest.
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